The Federal Housing Finance Agency (FHFA) has released a notice of proposed
rulemaking that would require Fannie Mae and Freddie Mac (the GSEs) to develop
resolution plans. FHFA says these plans “would facilitate a rapid and orderly
resolution should FHFA have to be appointed their receiver under the Housing
and Economic Recovery Act of 2008.”
According to the press release, the proposal is designed to ensure the GSEs
are prepared in the same way as financial institutions regulated by the Federal
Reserve and the Federal Deposit Insurance Corporation to react to another
adverse financial situation. Under the Dodd-Frank Wall Street Reform and
Consumer Protection Act, larger institutions must submit living wills that detail how their core
business lines would be maintained to prevent the kind of widespread disruption
triggered by the failure of Lehman Brothers and Bear Stearns prior to the Great
FHFA says the Department of Treasury’s 2019 Housing Reform Plan highlighted
the need for a credible resolution framework for the GSEs and the Financial
Stability Oversight Council recommended living wills for the two companies
earlier this year.
The proposed rule will require Fannie Mae and Freddie Mac to show their important
business lines would be maintained to ensure continued support for mortgage
finance and stabilize the housing finance system, without extraordinary
government support to prevent one or both from being placed in receivership,
indemnify investors against losses, or fund their resolution.
“The rule proposed today is an important step toward a stronger housing
finance system. Requiring the [GSEs] to develop living wills, helps FHFA
fulfill its responsibility to ensure that the failure [of one] would harm
neither taxpayers nor the mortgage market,” said Director Mark Calabria.
“The proposed rule gives FHFA a tool that supplements its existing statutory
authorities to restructure a failed Enterprise so that government does not have
to put them into conservatorship again.”
The proposed rule will be open for public comment for 60 days after its
publication in the Federal Register.